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After 183 years in Delaware, the future of WSFS Bank appears to be just over the border.

"When we looked at future growth, we looked at what makes the most sense and, clearly, nearby southeastern Pennsylvania made the most sense for us," said Mark Turner, president and chief executive officer of WSFS.

The Wilmington-based financial services company, feeling constrained by the small size of Delaware's commercial banking market, has set its sights on the counties around Philadelphia. WSFS this year has spent nearly $200 million to acquire two suburban Philadelphia banking chains that will increase its presence in that region to 36 branches in three counties.

"We think there is much more opportunity to get in Delaware and more customers to serve in Delaware, but we are looking for above-average growth rates and at some point you settle into the average growth rate of the market," Turner said. "We probably have another five to seven years of above-average growth rates [in Delaware]."

Although WSFS first targeted southeastern Pennsylvania about seven years ago through de novo expansion, a banking industry term for opening up a new branch, the bank recently accelerated its plan as large, national banks began to gobble up smaller community institutions.

In August, BB&T Corp. of Winston-Salem, North Carolina, paid $1.8 billion for National Penn Bank, a consumer and business lender with more than 100 branches in southern Pennsylvania. Only two months later, Cleveland-based Key Corp. agreed to pay $4.1 billion for First Niagara bank, including 124 Pennsylvania locations added through the latter's 2010 acquisition of locally operated Harleysville National Corp. for $302 million.

The nearly $6 billion of market share that changed hands in just those two transactions followed years of banking consolidation both nationally and in the Delaware Valley. For example, in 2011, Wells Fargo completed its $15 billion acquisition of the top bank in the Philadelphia market, Wachovia.

As the larger banks – some with a significant international presence – continue to enter the market, it created an opportunity for dwindling middle market banks, such as WSFS, to act or risk being frozen out of the market.

"Southeastern Pennsylvania is going through a fair bit of disruption in the banking environment," said Rodger Levenson, WSFS's executive vice president and chief financial officer. "You have very large institutions with lots of customers and locations in multiple markets. We feel our offerings and business model will be very attractive to any customers who become disenfranchised with the consolidation."

WSFS, the largest bank headquartered in the Delaware Valley, is ranked 11th in its home state in terms of total deposits with $3.4 billion, according to the most recent data from the Federal Deposit Insurance Corp., an independent agency created by Congress to insure deposits and monitor the banking industry. However, WSFS has the largest deposit total among local institutions without a large multistate presence.

The Delaware market is dominated by large, out-of-state banks. McLean, Virginia-based Capital One Financial Corp. dominates the state with nearly $88 billion in deposits, accounting for 25 percent of the total market, according to the FDIC. TD Bank NA, a subsidiary of a Toronto bank, is second with roughly $83 billion in deposits, good for 24 percent of the Delaware market.

Local banks are continuing to shrink in the state. Delaware's other long-term financial institution, Wilmington Trust, was formed in 1903 by a member of the du Pont family, merged with M&T Bank of Buffalo. M&T amassed $5.5 billion of Delaware deposits in the transaction, making it the state's seventh largest bank.

"To grow in Delaware, WSFS is going to have to outwork M&T to get a lot of the old Wilmington Trust business," said Matthew Schultheis, a banking analyst with Boenning & Scattergood. "M&T is a very good competitor."

As the large national banks expand their Delaware market share, it has stymied regional institution's growth within the state. WSFS has bucked that trend in recent years, acquiring First Wyoming Financial Corp. for $64 million in 2013. The purchase gave WSFS $308 million in assets and $250 million in deposits at six Kent County branches.

WSFS increased its Kent County presence through the transaction. The bank now has 44 branches and 119,528 customers throughout Delaware's three counties. But in a state with less than a million residents, expansion opportunities remain scarce.

"What really drives banks' needs to go outside of their market is how fast that market itself is growing," Schultheis said.

In 2007, WSFS began looking at new markets and tracked demographic similarities between northern New Castle County and southeastern Pennsylvania. New Castle County has an average median household income of $62,000, according to U.S. Census Bureau data, roughly equal with the median household income of $61,000 in Delaware County, Pennsylvania.

Chester and Montgomery counties have the two highest median household incomes in the keystone state with about $85,000 and $76,000, respectively. That compares favorably to pockets of northern New Castle County, such as Hockessin or Greenville, where the median household income exceeds $100,000, according to the Census Bureau.

"The socioeconomic demographics are very similar, the traffic patterns are very seamless, and you have a lot of people who live in southeastern Pennsylvania and work in New Castle County," Turner said. "It just made the most sense, and our brand is recognized up there."

Schultheis agreed southeastern Pennsylvania was a logical area for expansion of the WSFS brand.

"If you are in Delaware, you can't move east," he said. "So when you look at population, distance and household income, southeastern Pennsylvania is more attractive than the Eastern Shore of Maryland."

WSFS entered the Pennsylvania market for the first time in 2008, opening a de novo branch in Oxford, Pennsylvania, about 15 miles from the Delaware border. Other de novo expansions followed with Pennsylvania branches opening up just over the Delaware state line in Glen Mills, Kennett Square and West Chester.

In March, WSFS paid $92 million for Alliance Bank, which had eight branches in Delaware and Chester counties. WSFS then bought Penn Liberty Bank with its 11 branches in Chester and Montgomery counties for $101 million in November.

"We've accelerated our investment in southeastern Pennsylvania because we've seen the consolidation and so the banks in the area have gotten much larger," Turner said. "There are fewer local banks capable of serving customers who want to be served by community banks, and we fit that niche very well."

Schultheis described the Penn Liberty transaction as, "pricey," an assertion Turner doesn't dispute. He said the bank was one of the most desirable franchises in one of the region's wealthiest markets, justifying a price between 50 percent and 75 percent of what other community banks have generated.

"You get what you pay for," Turner said. "It nicely fits into what we have having going up there. The whole combination makes sense even if it's priced higher compared to transactions in the past."

A former Alliance Bank being converted into a WSFS branch.(Photo: Courtesy of WSFS)

Schultheis said the high price could mean an effort to keep costs down during the transition.

"WSFS paid what the market bears," he said. "I'm not going to say they overpaid, but they paid a full price. From that standpoint, they don't have a lot of wiggle room on execution."

Joseph Glaude, a bank analyst with Merion Capital Group, said the acquisitions could grow WSFS's customer base by creating an alternative to the larger banks snapping up the region's community institutions.

"Employees who don't want to go to work at a big, more bureaucratic bank will have some customers who may follow them," he said. "Typically, the larger banks usually have some attrition in their customer base after an acquisition."

Turner acknowledged employee and customer departures are often a concern when a smaller bank is acquired. He said that WSFS takes steps to keep an institution's customer service workers after a purchase.

"To the customer, it's the face of the person they are dealing with that is important," he said. "Initially, it is much or more important than a brand. Customers develop an affinity for the brand over time, but it is the initial contact they are looking for."

He expects the bank will look to solidify its presence in southeastern Pennsylvania within the next decade. Turner said creating a stronger presence in Montgomery County, a possible expansion into Bucks County and entering Philadelphia's Center City, possibly with the purchase of a financial adviser instead of a bank branch, are all priorities over the next 10 years.

"Our goal for the next decade is to remain the largest, locally headquartered bank in the Delaware Valley," he said.